• Bridging the gap in agriculture

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    In what should be a welcome move, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo was earlier reported as saying that the central bank is looking at the possibility of including housing loans as an alternative mode of compliance to the Agri-Agra Reform Credit Act, which compels banks to set aside 25 percent of their total loanable funds for the agricultural and agrarian reform sector.

    In a report released by the Bureau of Agricultural Statistics, the agricultural sector posted an annual growth rate of just 1.9 percent in 2014, much slower than the rates registered by other industries such as manufacturing at 8.1 percent and trade at 6 percent.

    To address the gap, the government has allocated P86.1 billion for agricultural agencies to hopefully address the lack of significant progress in the farming sector.

    The initiative, however, could not stand without help from the private sector, which is why banks and other financial institutions are consistently being tapped to provide credit and financial access to agricultural workers.

    Rural banks have consistently supported this and have always been at the forefront of bridging the gap in agriculture. In fact, rural and cooperative banks registered the highest compliance percentage for agra and agri lending as of September 2014 at 58.51 percent, combined.

    However, banking groups, including the Rural Bankers Association of the Philippines, have pointed out that the lending requirement does not suit the credit practice of all banks, which is why they are pushing for the amendment of the mandatory lending law.

    Despite the positive intentions behind it, such form of mandatory lending also creates negative effects for banks. For one, banks located in almost-urbanized communities can barely find clients who would fit the agri-agra category. Moreover, it also forces banks to compromise their lending practices and risk allowance for the sake of compliance.

    Opening a new window for alternative compliance signals that the central bank recognizes banks’ concerns, and that it is amenable to reviewing, and eventually amending, the said law.

    While boosting the productivity of the agricultural sector is a worthy cause, the feasibility of the means employed should still be carefully considered. It should be effective enough to promote credit access for the industry, and viable enough for the supporting parties to follow.

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